Shanghai: General Motors Co will co-develop engines and transmissions with Chinese partner SAIC Motor Corp, seeking to draw on the allure of the fast-growing China market ahead of a highly anticipated IPO.

The joint development deal, announced by the two automakers in Shanghai on Wednesday, will help GM meet demand for small city cars in emerging markets and cut the costs of developing fuel-saving advances for the US market, where it faces the challenge of meeting tough new fuel economy standards by 2016.

The agreement also marks the first expansion of the GM-SAIC partnership in China since the Chinese automaker took control of what had been a 50-50 joint-venture in Shanghai GM by buying an additional 1% stake from GM in December. They also announced at the time that they would take their successful 12-year partnership to India with plans to make small cars and commercial vehicles through a 50-50 joint venture.

GM is expected to announce plans for a public offering of stock in a filing with securities regulators as soon as Wednesday that will allow the Obama administration to reduce its 61% stake in the automaker.

Asked about SAIC’s interest in GM’s IPO, SAIC chairman Hu Maoyuan said: “We cannot comment on whether we will participate in GM’s IPO before we study the details of the IPO."

Analysts have said potential investors in the top US automaker will be looking in part at how it manages a strategy for sustained growth in the Chinese auto market, now the world’s largest.

Engine and transmission systems — known as vehicle powertrain systems — are typically the most expensive parts of a new vehicle programme with costs in the hundreds of millions of dollars.

GM and SAIC will develop engines with displacements from 1.0 to 1.5 litres in a collaboration of engineers in Detroit and at their engineering and design joint venture in Shanghai.

The engines will twin direct injection and turbocharging to boost fuel efficiency and performance, GM said in a statement. Combined with the transmission also to be developed with SAIC, the new powertrain would improve fuel consumption by up to 20%, it said.